LG Innotek, the electronic components corporations of LG Group, is seeing profitability improve as shipments of high-value camera modules for Apple's "iPhone 17 series" increase, and expectations for earnings are rising as supplies of semiconductor substrates for smartphones also grow. As the iPhone 17 series adopts semiconductor substrates with performance improved over the previous model, sales of high-margin, high-value substrates have increased. With sales of flip chip ball grid array (FC-BGA), which LG Innotek is fostering as a next-generation growth driver, starting to be fully reflected from the fourth quarter, there is an outlook that the substrate materials division's earnings improvement will continue. FC-BGA secures semiconductors stably and transmits electrical signals.
According to FnGuide, on the 24th, LG Innotek's operating profit forecast for the fourth quarter of this year is 323.4 billion won, which is expected to increase by nearly 30% compared with the same period last year (247 billion won). Analysts say the growth of not only the Optical Solution Business Division, which handles the core camera module business, but also the substrate materials division, which handles the semiconductor substrate business, stood out. Chae Min-suk, a Korea Investment & Securities researcher, said, "Centered on new semiconductor substrate products used in the iPhone 17, both top-line growth and profitability improvement are occurring simultaneously."
LG Innotek has a higher share of semiconductor substrates for mobile devices compared with competitors in the substrate business such as Samsung Electro-Mechanics. The main semiconductor substrate lineup of LG Innotek's substrate materials division includes flip chip–chip scale package (FC-CSP) used in the application processor (AP), the brain of the smartphone, and radio frequency system-in-package (RF-SIP), which are substrates used in semiconductors responsible for smartphone communications. LG Innotek is the No. 1 corporations in the RF-SIP market, where the technology barrier is relatively high. LG Innotek is known to hold a market share of more than 30% in this market. In addition to LG Innotek, Samsung Electro-Mechanics, Amkor Technology, and ASE also provide RF-SIP solutions.
Amid this, it is analyzed that earnings improvement at the substrate materials division has also begun in earnest, starting with the launch of the iPhone 17 series by key client Apple. Operating profit at the substrate materials division in the third quarter of this year was 80.1 billion won, up about 65% from the same period a year earlier (48.6 billion won). An official in the electronic components industry said, "Not only did the initial volume of the iPhone 17 series increase by more than 5% compared with the previous model, but overall component performance improved, raising unit prices for some products and affecting profitability," adding, "As high-performance, high-integration semiconductors are installed in smartphones, demand for the accompanying high-value substrates is on the rise."
Not only semiconductor substrates for smartphones but also FC-BGA results are expected to be fully reflected from the fourth quarter, leading to continued earnings improvement at LG Innotek's substrate materials division. Having declared entry into the FC-BGA market in 2022, LG Innotek is said to be supplying FC-BGA to global big tech corporations such as Intel starting this year. Park Jun-seo, a Mirae Asset Securities researcher, said, "While the strength in mobile substrates continues, the visible entry into the FC-BGA market for central processing units (CPU) points to earnings improvement for the substrate materials division."
With the growth of the Optical Solution Business Division, which handles the camera module business, and the substrate materials division expected to continue into next year, LG Innotek's annual operating profit is also projected to increase. The securities industry estimates LG Innotek's operating profit for next year at 808.1 billion won, up about 22% from this year's 659.9 billion won.